Going public: Shenzhen plans to build a million more affordable homes

November 1, 2019

More like Hong Kong or more like Singapore? That’s one of the questions for Shenzhen’s housing bosses, who are mulling new ways to put a lid on the city’s property prices.

Shenzhen has a reputation as a boomtown and also as city of migrants. The two are linked. Outsiders have made the city into the country’s creative hub, spawning some of its most dynamic firms. But the question is whether Shenzhen’s success is making it hard for newcomers to work there by taking property prices to unreachable levels.

Average prices increased more than 10 times between 2005 and 2015, and the city was ranked as the fifth most expensive globally for property in May, according to real estate advisor CBRE, with average home prices of $726 per square foot.

Securities Daily, a local newspaper, calculated a few months later that an average couple had to save their combined salaries for nearly 30 years before they could own a home of their own.

That’s a problem for city bosses, who want Shenzhen to stay competitive as a tech and manufacturing hub, spearheading the country’s advances into new industries and new technologies. Hence the pledge to build 1.7 million new homes by 2035, with at least 60% of the total in public housing of some form, including apartments earmarked for ‘talent’ that works in strategic sectors, as well as affordable homes for grassroots citizens.

Shenzhen has already made a start on the plan, promising to release 42,000 units into the market by the end of next year. Fortunately its local government isn’t quite as reliant on income from land sales as many of its peers, giving it more room for manoeuvre on the housing plan. Bidders in land auctions are also being asked to set aside part of their projects for ‘talent’ housing and in other cases developers compete for blocks of land by offering to transfer some of the space for free.

Less in its favour is Shenzhen’s smaller urban area, which pushes up prices. A newly awarded role as an experimental zone is a double-edged sword too. The designation means more state support in areas like R&D, education and urban infrastructure, making the city a more attractive place to live and work. But it will also stoke up demand for industrial, commercial and living space. Meeting it won’t be easy.

Critics of the government’s plan say that the focus on public housing is going to limit the supply of commercial stock, pushing up prices even higher for private buyers. Highlighting the point was a home sale last week of 192 high-end units that locked up almost Rmb14 billion ($2 billion) in deposits from about 2,700 prospective buyers – the largest haul in Shenzhen’s history.

But in setting new priorities Shenzhen seems to be trying to learn lessons from Hong Kong, which has been battling sky-high property for years. It also adopted a long-term housing strategy in 2014 to boost the share of public flats to 60% of new supply, although there have been shortfalls since then in construction.

Commitments to public housing programmes don’t always have the impact that planners expect. One of the ironies is that Hong Kong’s proportion of public housing (about 45%) is more than double Shenzhen’s. However, both cities are far behind Singapore, where more than 80% of housing is publicly owned. That has seen local newspapers talking about Shenzhen’s plans as an effort to emulate the Lion City, and a parting of the ways with neighbouring Hong Kong. Shenzhen is turning away from one of its pioneering roles of the past as well: back in 1987 it hosted the first land auction in China, launching the era in which home prices were exposed to market forces.

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